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Thayer Consultancy

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Background Brief Vietnam: New Wave of State Enterprise Reform? Carlyle A. Thayer October 2, 2013

[client name deleted] We are preparing a report that will analyze some recent signals by Vietnam that it is ready to embrace economic reforms. These signals include: 1) The politburo's April resolution calling for economic integration; 2) The appointment in May of Nguyen Thien Nhan to the Politburo 3) Vinashin's recent signals that it is planning to restructure its debt and fire more than half its workforce; and 4) PM Dung's comments yesterday in New York: http://www.bloomberg.com/news/2013-09-29/vietnam-premier-opens-door-toforeign-investors.html Are these developments (and perhaps also others that we have overlooked) signs that Vietnam is edging closer to implementing some hard-hitting economic reforms, even if that means clipping the wings of some state-owned enterprises (SOEs)? We request your assessment. ANSWER: Vietnam is moving into another cycle of economic reform including the reform of SOEs. The Vietnam Communist Party will be holding its eighth plenum this month. This marks the halfway point between national party congresses. The next national congress is scheduled for early 2016. By all account this plenum will be a significant meeting with speculation of possible senior leadership changes. Some of the indications of a renewal of economic reform we are now seeing are an attempt by some senior party officials to pre-empt criticism by Central Committee members on how they have handled the economy. Nguyen Tan Dung is working hard to overcome the stinging criticism he received at the October 2012 party plenum. On April 10, the Politburo unanimously adopted a resolution on international integration. This document makes absolutely clear that economic integration has the highest priority and that Vietnam must engage more with multilateral economic organisations. It is significant that Prime Minister Dung was put in charge of overseeing international integration; but he has to report annually to the Politburo on progress.

2 The case is still out on Nguyen Thien Nhan. He was elected to the Politburo with a very high vote by the Central Committee. As Deputy Prime Minister he was given the chairmanship of the China-Vietnam Joint Steering Committee which oversees all aspects of bilateral relatiosn. He also visited South Korea. But recently he was appointed chair of the Vietnam Fatherland Front (VFF), an umbrella group for Vietnams mass organisations. It is unclear whether he was shunted aside or is being groomed for further responsibilities. The head of the VFF in the past has been a retired member of the Politburo. It is unclear that Nhan will remain Deputy Prime Minster. Q2. Is Trans-Pacific Partnership (TPP) increasing pressure on party leaders to implement SOE and economic reforms, and if so, do they appear to be yielding? And has the TPP calculus changed at all in recent months, as the negotiations have advanced? ANSWER: Vietnam is committed to the TPP and this will involve some hard bargaining with the United States. Party reformers are pursuing the TPP for what they see as its advantages, continued access to the more advanced regional economies. The TPP is also a method to discipline Vietnams economic managers in parallel with the US-Vietnam Bilateral Trade Agreement many years ago. Reformers use international commitments to extract domestic reforms in order to raise Vietnams standard of performance. For more than a decade and a half falling behind economically has been identified in internal party documents as one of the main dangers threatening Vietnams overall stability and security. Q3. When you say Vietnam is entering 'another' cycle of economic reform, when was the last one? And about when did Vietnam start moving into the current one? ANSWER: It can be argued that Vietnam began SOE reform in the 1980s, but the key time period is from the mid-1990s when a law on SOEs was adopted (1995) and efforts were made to reduce the number of SOEs through mergers. The Global Financial Crisis (GFC) slowed reform. For example, in January 1997, the Central Committee ordered the army and ministry of public security to divest themselves of all business enterprises that were unrelated to their core interests. The GFC has left this directive dead in the water. More recently, the current round of SOE reform can be dated from about October 2012 with the setting up of an asset management group and the criticism of a certain comrade (Nguyen Tan Dung) by the Politburo. Q4. When you write that party reformers are using international commitments to extract domestic reforms, are you implying that the TPP is among the motivating factors for the recent reforms mentioned above (Nhan's appointment, the Politburo resolution, Vinashin's debt and workforce restructuring, and Dung's recent speech at the 68th session of the United Nations General Assembly)? ANSWER: Yes. It works both ways, the reformers want reform and yes they want to use international commitments to gain leverage in their efforts.

3 Suggested citation: Carlyle A. Thayer, Vietnam: New Wave of State Enterprise Reform?, Thayer Consultancy Background Brief, October 2, 2013. All background briefs are posted on Scribd.com (search for Thayer). To remove yourself from the mailing list type UNSUBSCRIBE in the Subject heading and hit the Reply key. Thayer Consultancy provides political analysis of current regional security issues and other research support to selected clients. Thayer Consultancy was officially registered as a small business in Australia in 2002.